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Jan 052012
 




The Indian IT industry, which has been steadily growing over the last two decades by providing low-cost IT services to western companies, faces uncertain times in the near term.

Slowdown in 2012

Analysts see all four major technology sectors computing hardware, enterprise software, IT services and telecommunications equipment and services experiencing slower growth in 2012.

IT market researcher Gartner has revised downward its outlook for 2012 global IT spending from its previous forecast of 4.6% growth to 3.9%.

IT services, on which Indians rely for their entire business, will see a severe hit.

Compared to an estimated growth of 6.9% in 2011, the growth projection for IT services in 2012 is just 3.1%.

IT Services Spending Will Slow in 2012 - SearchIndia.com

The projected slowdown in IT services growth combined with the tightening on issue of H1 and L1 Visas that Indian companies rely a lot to do their work in America could mean hard times ahead.

The slowdown will also intensify the battle between the big Indian firms like Infosys, Wipro and TCS for business and potentially affect the rates they charge.

All in all, 2012 does not look like a good year for the code monkeys sitting in the cubicles of Noida, Pune, Bangalore, Chennai and Hyderabad or for the share prices of the Indian IT companies.

  2 Responses to “Indian IT Firms Staring at Slowdown”

  1. First of all, wishing SI and its readers a belated, but very happy 2012. May many good things happen this year.

    SI Wrote:
    “All in all, 2012 does not look like a good year for the code monkeys sitting in the cubicles of Noida, Pune, Bangalore, Chennai and Hyderabad or for the share prices of the Indian IT companies.”

    Two points:
    1) Without innovation, any software company will die a slow death. This applies specifically to many other IT players, but more to India naturally because India is one of the biggest players in IT and BPO. They have taken the customer for granted too many times. So, it’s either do or die for them now.

    2) Monkeys cannot type code. :)

    SearchIndia.com Responds:

    1. Sweetie, Thank You for your Good Wishes. We wish You Good Health & Prosperity in 2012 and ahead.

    2. You write: Without innovation, any software company will die a slow death. This applies specifically to many other IT players….

    Innovation is not a necessary condition for surviving.

    The Chinese manufacturing sector has shown little evidence of innovation but has survived on the back of low-cost migrant labor from the rural side.

    For the last two decades, the Chinese economy has been going gangbusters.

    So far, rumors of the Chinese economy running out of steam have proven to be greatly exaggerated.

    Pakistan shows little innovation yet we (now ‘we’ means Americans) keep throwing billions to the mongrels.

    3. Innovation over the last few decades has been largely confined to the White world (America & Western Europe).

    Perhaps, societies need to advance to a certain level before the buds of hard work can blossom into the flowers of innovation. That’s our hypothesis any way.

  2. My 2 cents,
    Well, the Chinese are exploiting the cost advantages they can offer in manufacturing. They have built production capacities that scale and they have ramped up on basic infrastructure tremendously to support these production capacities. They are here to stay and have a solid foundation for mass production now.

    With India looks like infrastructure support for manufacturing capabilities is rickety at best, nowhere near the scale or quality of what the Chinese have. So becoming a global manufacturing manufacturing for India is out of question – with a few exceptions. Some auto manufacturing in India seem to do ok, however these companies run their complete islands of manufacturing with little reliance on public infrastructure. Captive power generation, location in a port city to avoid heavy reliance on roads, low percentage of indigenous components to avoid local manufacturers they are going to great lengths to overcome the infrastructure hurdles in India.

    India as we all know does have a ton of English speaking manpower well suited for low end IT and BPO which has been exploited well so far. However it looks like there are factors at play that is slowly chipping away at these advantages for India. Cost of doing business in India seems to be growing exponentially, office space in a well connected location in Bangalore is higher than New Jersey or Philly for example.

    Plus there has always been the pervasive question about quality of work at low cost offshore locations.

    The IT work might last for quite a while because the cost differentials are still significant.

    But the BPO stuff could be at significant risk.

    The other day GE’s Jeff Immelt was saying that they pay about $13 to $15 an hour in their plants now. A far cry from what they used to pay, but it is what they can afford to pay to be competitive globally.

    Plenty of takers for these jobs, and it keeps the jobs at home. Whenever you call Discover card, the first thing the CSR says is – “Hi this is John Doe in Delaware/Nebraska/wherever…..” they seem to underscore the fact that the person in based in the US. The customer service is top-notch.

    I think the offshore BPO stuff might soon be relegated to doing non-interactive processing work and supporting $40 made-in-china router support for “cannot connect to internet” type problems. At least it seems to be trending that direction.

    Speaking of innovation being confined to the West, a good indicator is the number of patents filed/granted.

    Japan has been in the top bracket for a long time.

    China’s patents filed/granted has been growing by leaps and bounds and I wouldn’t be surprised to see them take the no.1 spot later this decade.

    SearchIndia.com Responds:

    You write: Speaking of innovation being confined to the West, a good indicator is the number of patents filed/granted. ….

    1. It’s true that patent filing in Japan has been consistently high over the last few years.

    But like any good exporter Japan also files more patents outside Japan than does the U.S. does outside America. Source: http://www.wipo.int/ipstats/en/statistics/patents/

    2. Are patents the best indicators of innovation? Increasingly, Patents are seen as a business tool useful for shakeouts of other businesses and on occasion are handed out even on frivolous grounds like the infamous one-click shopping thing.

    3. For good or bad, some of the major forces propelling Modern Economy & Society over the last 100 years have flowered in the West – Automobile, Atom Bomb/Nuclear Power, Motion Pictures, Internet/Web, Military-Industrial Complex (pre-1945 Japan was an exception), Recreational Drugs, Legal Gambling, Modern Medicine, Legal/Illegal Migration (to not from), Petroleum (it lay there beneath the Arabian deserts for God knows how many centuries until the West found a use for it) and last but not least Online and Offline Porn. ;)

    4. All that said we think the best innovation days of the West are ending.

    This does not necessarily mean the East will take over as many suppose. Civilizations can coast along for centuries on a reduced speed as we predict will happen without any of the remarkable paradigm changing inventions and epochal events of the last two or three centuries.

    5. BTW, India is not the only country where BPO customer service is below par. Comcast routines shuffles support calls to Philippines and those guys are no better. At least, being Indians we can understand Indians (phony accent or not).